Question

On January 1, 2018, Alamar Corporation acquired a 43 percent interest in Burks, Inc., for $192,000....

On January 1, 2018, Alamar Corporation acquired a 43 percent interest in Burks, Inc., for $192,000. On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $327,000. During 2018, Burks reported net income of $83,000 and declared and paid cash dividends of $25,000. Alamar sold inventory costing $22,000 to Burks during 2018 for $39,000. Burks used all of this merchandise in its operations during 2018. Prepare all of Alamar's 2018 journal entries to apply the equity method to this investment

Record the acquisition of a 43 percent interest in Burks.

2

Record the 43 percent income earned during period by Burks, an investment recorded by means of the equity method.

3

Record the investee dividend declaration.

4

Record the collection of dividend from investee.

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Answer #1

1) Investment in Burks inc 192,000

cash 192,000

2) Investment in Burks inc (83000 X 43%) 35690

Equity in investee income 35690

3) Dividend receivable (25000 X 43%) 10750

Investment in Burks inc 10750

4) Cash 10750

Dividends receivable 10750

Explanation:

Purchase price of Burks stock $192,000

Book value of Burks stock ($327,000 × 43%) (140610)

Unidentified asset (goodwill) 51390

Life Indefinite Annual amortization 0

No intra­entity profit exists at year’s end because all of the transferred merchandise was usedduring the period.

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